Income cut for oldies
Having become known for being a high-yielding equities market, Australia has made the deepest dividend cuts and deferrals this year, underscoring the arguments in favour of taking a global approach to investing.
This dynamic isn't going to aid consumption or the economic recovery, especially as Aussie bank dividends have now effectively all but dried up.
Plenty of the older retiree set in Australia had become conditioned to enjoying the extremely strong franked dividend streams from Aussie banks during the good times.
However, Westpac initially 'deferred' its dividend for the first half this year, ANZ Bank followed in kind, while National Australia Bank slashed its dividend to just 30 cents per share while simultaneously announcing a $3½ billion capital raising to shore up its equity.
NAB's paradoxical announcement was a careful balancing act which neatly encapsulates the politicised nature of Australia's bank dividends.
Many elderly retirees have deliberately positioned their portfolios to rely on the extraordinarily high dividends from banks, to the extent that dividend imputation was even a potentially election-turning issue in Queensland last year.
The great rebuild
Capital buffers will ultimately need to bolstered over the coming years, and bank dividends will need to remain much lower as balance sheets are rebuilt, while further capital raisings may yet follow (and that's assuming that we don't get a cascade of loan defaults when repayment holidays end).
It won't just be the banks facing down these challenges; related headwinds are facing retailers and department stores, construction firms, real estate companies, and other sectors besides.
The outlook for the resources sector may arguably be brighter as the Chinese economy begins to fire up again, and as the bedraggled Brazilian iron ore producers struggle to maintain throughput.
Given that Australia now has the second highest stock ownership rate in the world even outside of its superannuation funds, the dividend drought will unfortunately have a direct knock-on impact to consumption and consumer spending.
Source: ASX
To date Aussie stock indices have only declined by about 15 per cent from where they were at in February, which really isn't all that much given the starting point and the parlous state of large chunks of the economy.
On the other hand, dividends will in many cases be scrapped this year, as reflected in Vanguard's Australian Shares fund (ASX: VAS) declaring a final distribution of just 20.6 cents per unit.
Source: Intelligent Investor
MOAR stimulus needed
There's an awful lot going on in the world right now, but it seems to me as though many have underestimated the sheer scale of the impacts we'll see from the massive cuts to immigration, construction, international students, tourism, and consumption.
Even if these issues prove to be temporary this equates to a cavernous gully which needs to be bridged before we see an unemployment rate anywhere near 5 or 6 per cent again.
There's simply no way stimulus should be snapped off in September - it'll need to continue deep into 2021 in my book - but let's see what the Treasurer has up his sleeve on July 23!
